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Investment Yields Set to Fall Further

LONDON-Prime investment yields are set to fall further despite weaknesses in the occupational markets according to FPDSavills. Cheap borrowing costs and more competition are driving down cap rates.

By Graham Parker | Updated on May 22, 2002

LONDON-The yield shift seen since the beginning of 2002 has further to go, according to FPDSavills. William Newsom, head of the firm’s commercial valuation team, said that relative to the cost of money, commercial investment property is looking under-priced.

‘The property investment market is now moving more in step with the finance markets and the low cost of money is feeding through to property yields,’ said Newsom. ‘This is taking place against a background of a severe supply/demand imbalance in the property investment market.

Newsom said there is strong competition between various types of investor, including debt-backed purchasers, pension funds and insurance companies. Also in competition for scarce product are the opportunity funds–with $65 billion to spend, much of which is targeted towards Europe–and the German open-ended funds, whose net inflow of funds to invest during quarter one 2002 alone was €6.45 billion ($5.8 billion).

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